Is Google Enticing After Recent News?

With shares of Google (NASDAQ:GOOG) trading around $1,138, is GOOG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Google is a global technology company focused on improving the ways people engage with information. The business is based on the following areas: search, advertising, operating systems and platforms, and enterprise. The company generates revenue primarily by delivering online advertising. Google is a search giant with most of the market share, largely because of its execution and delivery. An increasing number of consumers and companies worldwide are coming online, which will surely increase the amount of eyes on the company’s ads and, in turn, advertising revenue. At this rate, look for Google to remain on top of the Internet world.

Already with more than 1 billion activations on mobile and media devices, Google’s Android is set to make an impact on another major industry: automobiles. Following rumors that the search giant was working with Audi to embed its open-source OS inside its cars, the company confirmed it has teamed up with five automotive and technology companies — with more expected in the future — to form the Open Automotive Alliance. Alongside Audi, Google will be joined by General Motors (NYSE:GM), Hyundai, Honda (NYSE:HMC) and chipmaker Nvidia (NASDAQ:NVDA), which will all work to bring Android to cars starting this year. The coalition aims to create a common platform that will drive innovation and in turn make cars “safer and more intuitive for everyone.”

T = Technicals on the Stock Chart Are Strong

Google stock has been exploding to the upside in the past several years. The stock is currently trading near all-time highs and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Google is trading above its rising key averages, which signals neutral to bullish price action in the near term.

GOOG

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Google options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Google options

23.55%

96%

93%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Flat

Average

March Options

Flat

Average

As of Tuesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Google’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Google look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

21.08%

-5.53%

13.6%

17.06%

Revenue Growth (Y-O-Y)

11.94%

15.52%

31.23%

24.87%

Earnings Reaction

13.79%

-1.55%

4.43%

5.49%

Google has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Google’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Google stock done relative to its peers – Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and Baidu (NASDAQ:BIDU) — and sector?

Google

Expedia

TripAdvisor

Travelzoo

Sector

Year-to-Date Return

2.29%

1.92%

-2.41%

2.12%

1.98%

Google has been a relative performance leader, year to date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. The company’s Android OS is set to make an impact on another major industry. The stock has been exploding higher in recent years and is currently trading near all-time high prices. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased about recent earnings announcements. Relative to its strong peers and sector, Google has been a relative year-to-date performance leader. Look for Google to continue to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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